Category: Finance

Good Credit Takes Time

The single fastest way to good credit is to pay down your credit card balances to almost zero. If you owe a lot, this can take time, but even reducing your balance a little bit each month will cause your credit score to rise.

The goal is to keep using your cards responsibly to buy things like gas and groceries. Once you have your balances down to roughly zero, start paying your balances in full each month. This is a great place to be because you are now not paying any interest! This is a great feeling.

Great Credit Takes Good Credit Plus Time

One of the cool things about a good credit score is that it can lead to a great credit score. With a good credit score your are more likely to be approved for credit limit increases you request. When your credit limits are increased, so is your “total credit limit”… the sum of the limits of all of your credit cards. This in turn lowers your total credit utilization, which helps boost your credit score. I call this cycle the good credit spiral.

More Available Credit is a Good Thing: Just Don’t Overuse it!

One funny thing about credit is that the less you use it, the more credit card companies are willing to offer more credit to you. Regardless of your situation try to keep your total credit card utilization below 30%, and preferably below 20%.

My Credit Improvement Journey

The credit journey I began ten months ago has now fully paid off; I now have:

A higher credit score, 749, than when I started (747)

About 3 times the total available credit

3 new credit cards with top-notch benefits

A total of $400 cash in signing benefits

2% cash back on all purchases

5% cash back on rotating categories

15 months of interest-free balance transfer

Ouch! The Lowest Score Matters Most!

My wife has recently joined me on this credit journey. We are joining forces because we want to do a cash-out refinance of our mortgage to do some home improvements.

It turns out that when a married couple applies together to refinance a mortgage it is the lower partner’s score that impacts approval and rates. Specifically, the mortgage lender pulls three credit scores for each partner from Experian, Equifax, and TransUnion. It then determines the middle credit score for each partner. Finally, the bank (or credit union) uses the lower of the two middle credit scores.

Late Payments can Hurt Both Partners

Due to a auto-pay mix up, I have two late payments just over 3 years ago on a credit card solely under my name. Strangely, this card started showing up on my wife’s credit report about 5 months ago. I called a credit agency and they claimed that this is perfectly legal for them to do! They can put negative credit items from one spouse onto the other spouse’s credit report. (They don’t tend to use positive credit information this way.)

The mix-up was my fault. I am now much more diligent in keeping up with my credit cards! It sucks that my mistake pulled down my wife’s score. When the credit card showed up on her report her score dropped about 30 points. The timing strongly suggests that the score drop and the inclusion of this credit card are related.

Credit Prep for a Mortgage Refi

In order to qualify for the best mortgage rates and terms possible our goal is to boost our lowest credit score (between us) to about 750. 750 gives us a little wiggle room to make sure the credit score that the lender uses is 740+. Keep in mind that the credit scores you receive are not the same as the ones the lenders get. That is why the 10-point safety margin is useful

We want to do our mortgage refinancing while mortgage rates are still very low. The easiest quickest way to pull up my wife’s credit score is to pay down more of her credit card debt — even if it is interest-free at present.

We are both self-employed now, so we face an uphill challenge with our goal of refinancing our mortgage. Working together we hope to meet this challenge by having solid credit scores.

Quick Credit Score Update

Both credit score predictors were wrong. One predicted a small drop (about 3 points) the other a small gain (again, about 3 points). Instead my score dropped from 735 to 724 — 11 points. However, two months later, it bounced back to 733, roughly what I expected.

I anticipate, that with continued paying of my full balance due every month, except on my one zero-interest, balance-transfer card, that my scores will gradually increase. I will provide occasional updates as developments occur.

In the last post I wrote about how my wife’s credit score (783) was significantly higher than mine (747). That just won’t do — I embarked on a credit-score-improvement quest that includes research and experimentation.

The experiment is already paying off in unexpected ways. I got a $100 bonus and began using a 1.5% cash-back Quicksilver card as my day-to-day card. This a small upgrade from my 1% cash-back card. I also convinced my wife to get a Citi Double Cash Back card for most of our recurring monthly expenses that ends up saving us 2%.

I learned more taking with my brother about his credit card management techniques. It turns out that he and his wife are pretty expert at credit-card savings. He has various 5% cash-back category cards he uses to buy groceries and gas. They also have 2% cash-back cards for non-category purchases. He also uses a neat trick to stretch the 5% grocery purchases further… buying pre-paid gift cards at grocery stores for, say, Home Depot or Target — effectively getting 5% off of purchases there too! Financial savvy definitely runs in the family.

Let’s not forget mileage cards too. My United MileagePlus Explorer Card is the only card I have with an annual fee ($95). I fly often enough on United that it is worth it to me. And recently between my wife and I we recently bought 5 tickets with United miles for myself and some family members (Tip: if you want to help someone buy a ticket with your miles, don’t pay to transfer your miles to them… instead simply buy the ticket for them with your miles!)

The Credit-Card/Credit-Score Experiment

As expected, getting two new cards temporarily lowered my credit score — from 747 to 728. However, it recovered a bit… to 735. So what did I do… get one last new card… The Chase Freedom Card with a $200 (20,000 point) bonus.

I decided to get a %5 cash-back “rotating-category card.” It was the $200 bonus that caused me to chose this this particular one. The criteria for collecting the bonus is pretty simple: charge $500 of purchases in the first 3 months. I view this as purchasing $500 worth of stuff that I would have bought anyhow — Christmas gifts and such — for only $300.

This third new card will probably cause another temporary downward blip on my credit score. What’s important about this last card is that it brings my total credit card limit (amongst all active credit cards) to $61,700. This means that the debt (see previous post) of approximately $12,000 will get below the critical level of 20% of utilization of available total credit… which should help my credit score in the mid to long term. In the meantime I am “floating” $12,000 in debt for free at 0% interest for 15 months.

What Next: A Credit-Score Challenge?

My personal challenge is “no more new cards until 2016.” I’ve had my fun getting 3 new cards that I believe will 1) help my improve my credit score in the long-run, and 2) help me save money (via cash-back programs) on purchases.

Onc challenge will be in keeping some activity on all of my open cards, and earning maximum cash-back while resisting the temptation to overspend just because there is a small reward. I hope to have a zero balance before the teaser 0% APR rises to some ridiculous level (of, say, 19%). I will keep you updated here.

My employer and I are parting ways after nine and a half years together. It is an amicable separation, and I wish the [unnamed] technology corporation, and especially my soon-to-be coworkers the very best. I am happy that the severance package is reasonably generous.

I feel a bit bad for my coworkers because they still face the same aggressive schedules but with about 30 fewer engineers. However, the company is actively working to reduce headcount, and those left behind almost always bear greater burdens on their lives. Sixty-hour weeks are not uncommon in the tech industry, and over the years I’ve endured the occasional 100-hour week. When that happens, breakfast, lunch, and dinner is brought in because there is no time to eat otherwise.

There was a time when I didn’t mind fifty- and sixty-hour weeks. But that was when everything was new, exciting, and fun. That was when I worked at the “old HP”, where almost anything was possible. In the beginning I learned something new almost daily, and I love learning.

Here is why this “job separation” feels like a good thing:

Severance pay is a nice perk.

I believe my best talents are wasted in my current role.

There is virtually nothing for me to learn in my current role.

The is little chance of me moving to a significantly different role (within the corporation).

I will never get rich working for a large corporation, unless I build it myself.

Going to work feels like stepping into the Matrix.

True creativity is treated like the flu… people avoid it as much as possible.

I am willing to bet on myself and my talents!

I am passionate about creativity and I have largely refused to drink the corporate Kool-Aid. Pretending to be a Kool-Aid drinker is extremely taxing, and feels disingenuous.

Creativity is more habit than raw talent. Creativity can be exercised and developed, or it can be quashed and stifled. Creativity is dangerous to boring people and their boring jobs. In contrast, creativity is energizing to interesting and open-minded people.

I prefer to use my energy to improve the world in my own unique way, and with my own unique, somewhat flamboyant style. I can relate from repeated managerial feedback that my style is not appreciated by former employer. My style is friendly, lively, and centered around humor with a touch of sarcasm. Liveliness, humor, and particularly sarcasm are not appreciated in my former corporate realm. What passes for humor is so sanitized that any pre-existing wit is sublimed into the corporate HEPA filter of political correctness, anxiety, self-censorship and banality. That culture is one reason this [unamed] corporation’s advertisements are so uninspired.

I am managing my own company now. It is a start-up, and it is my passion. It is being built around disruptive technology — technology that will make waves in the world of investing. Technology that few will understand, but which produces results that almost anyone can appreciate. The culture of this new company will be based on a simple idea — be bold.

I have been on my new work out regimen for about 3.5 months. In this time I have increased my sustained energy (cardio) output by 40%, and can now bench press more than my own weight. With a mix of strength and interval training I have begun morphing my body and my metabolism from a out-of-shape to somewhat in shape. I expect to continue making continuing gains for about 2-3 months, at which point I expect my fitness to begin slowly plateauing.

Frankly, I hope to continue exercising — in one form or another — for the rest of my life. According to my research, the level of exercise I am performing can, in the mean, extend my lifetime by about 3 years. This, of course, means my financial planning needs to be adjusted accordingly.

Mostly these minor adjustment mean a slight increase in savings and a small increase in risk-asset allocation.

There is seldom a benefit without a cost. My share of the cost for the family gym membership is about $60/month. I have also paid a short-term $1100 for 21 weeks of one-hour, one-on-one personal training. After the initial period, I plan on going to a once-per-month personal training program. This works out to about $1400 per year for the gym membership and monthly personal training.

However the benefits of physical fitness, both personal and financial are tremendous. The most striking example is type 2 diabetes, which a largely preventable and potentially devastating disease affection millions of Americans. According to this website, type 2 diabetes affects over 25% of people 65 years old and older. Preventing this one disease alone, in my opinion, is worth the financial and time costs of maintaining and improving physical fitness.

Improved fitness helps prevent other diseases such as stroke and heart attacks. Whereas fitness (and proper diet) are virtually guaranteed to prevent type 2 diabetes, improved physical fitness reduces the odds of, say, the devastating affects of stroke. But just like reducing the risk of a financial loss is valuable, so is reducing the risk of various diseases.

The Purpose of Investing

The purpose of individual investing boils down to two important objectives: 1) Being more confident in your financial future, 2) Attaining a bright financial future. In terms of well-being the first objective makes one feel more secure and happier today, while the second causes one to be more secure and hopefully happier in the future.

In essence the purpose of investing derives from the goals of security, freedom, and happiness. It is these goals that have got me hooked on “exercise religion”. In the case of financial matters, I continue to save today, for a brighter tomorrow. As regards fitness, I am similarly making investments of time and money to bolster my future health.

What I’m saying is that exercise is a form of savings — saving future cost of medical expenses, missed work, and unhappiness. I’ve put a lot of work into building my financial future, and I will do what I have to live to see it.

By the time I was 12 years old I knew more about finance and budgeting than most 20-year-olds. I had started delivering papers at age 11 and had accumulated a lot of experience by the time I turned 12. One of the older kids in the neighborhood had out-grown the paper route job, and my friend Alan I and I decided to share his route when the older kid “retired” from the newspaper business. Alan was 12 and I was just 11 — making me one of the youngest paper boys in town.

The route was long, spanning about 4-5 miles, and hence came with a long-distance premium paid every month. Alan and I alternated delivery weeks which included afternoon delivery Monday through Friday and early morning delivery on Sundays.

The best part of the job was afternoon delivery in the summer months. I seldom minded the heat and I enjoyed riding my bike around the neighborhoods. The worst part of the job was collections. Most subscribers paid by mail, but some paid directly to the delivery boys. For them, I would have to knock on their doors and ask for their monthly subscription fee. Since many paid in cash I had to make sure to have enough cash on hand to make change. I found that some people were very prepared to pay, while others said they did not have the money and “could I come back tomorrow?”. The worst was when tomorrow never came. The missing money temporarily came out of me and my partner’s pay. Only when the adults in billing got involved and the situation was rectified did Alan and I get our missing pay — and this could take a couple weeks. We pre-teen kids served as the bank floating interest-free loans to the newspaper!

A bundle of about 50-60 papers was dropped off at Alan’s house every afternoon (or Sunday morning). On rare occasions there would be one too few papers dropped off. This meant that I had ride an extra two-mile round trip to the nearest store to buy a copy to replace the missing paper. I would report the missing paper and get reimbursed for the cost of the paper — but not for riding an extra two miles. Another lesson — sometime you just have to take on extra work to keep your customers happy.

I was getting first hand exposure to revenue, earnings, “one-off” financial events, and accounts receivable. I learned that some customers paid on time and others were often tardy. Occasionally some were generous and even tipped! Those that paid my mail would sometimes leave a tip, especially around Christmas time. All of that had to be accounted for because Alan I shared the tips. Sometime the tips were gifts, rather than cash. Alan and I divided the cash, be kept the non-cash gifts we were given. We were both very fastidious about our finances, and I don’t recall ever having a conflict or dispute between us. We were honest and meticulous and it paid off in a good working relationship.

I had a savings account and interest rates were around 5 percent. I was eager to get my money in the back to start earning interest on it, and I’d go with my Mom to the bank to make deposits. (I think her main reason to go to the bank was to deposit my Dad’s paychecks). I was fascinated with the idea that after two months I would earn interest on interest (in addition to interest on my savings). After three months I’d earn interest on my interest’s interest’s interest (even though that amount might be less than one penny). I was paid interest monthly and always looked forward to my monthly bank statements. I also wondered about the possibility of daily interest, hourly interest, etc. I only learned later that my musings had touched on the mathematics of fundamental financial concepts such as compound interest, continuous interest, opportunity costs, and discounted future cash flows.

Looking back, I see that my paper route taught me a great deal about money and business. It also helped me develop a strong work ethic. In many ways it is a shame that the job of paper boy or paper girl is pretty much a relic of the past. So many lessons not being learned. It seems that there are fewer and fewer opportunities for younger kids to work, earn money and learn important life skills at an early stage. Nonetheless there are some young entrepreneurs who are finding real information-economy jobs on the internet, for example. Times change and so do opportunities to learn and grow. And that rate of change appears to be accelerating. We live in interesting times.